Greenback Remains Weak on Soft Core Retail Sales

Greenback Remains Weak on Soft Core Retail Sales

On the basis of poor US unemployment data in March and the inability of the Republicans to repeal affordable care act, on April 12th, we had forecasted the Greenback to decline against the Euro. In this regard, we had recommended taking a long position in the EURUSD pair near 1.0600, with a target of 1.0730. To binary traders, a call option was suggested. In a week’s time, both trades ended in profit. On Friday, the EURUSD pair soared further to hit a high of 1.0934. We forecast the uptrend to remain intact due to the reasons mentioned below.

According to Richard Franulovich, a currency strategist at Westpac in Sydney, inflation is expected to rise quickly in the Euro zone and close the gap with the US soon. The assessment is made on the basis of regression analysis between the unemployment and inflation data in the Euro zone. If the inflation in the Euro zone rises, the spread between the German Bund yields and the US Treasury yields, currently at -200 basis points, will narrow. That would propel the EURUSD pair further. The uptrend would be also aided by the recent soft economic data from the US, as described below.

On Friday, the Bureau of Labor Statistics reported a 0.1% m-o-m increase in the core consumer prices in March. However, the reported figures fell short of analysts’ estimates of 0.2% increase. Likewise, the US retail sales grew 0.4% m-o-m in April, versus the market’s expectation of 0.6% growth. In particular, the core retail sales growth, excluding automobiles, remained flat at 0.3% on m-o-m basis. Economists had anticipated core retail sales growth of 0.5%. Thus, on the basis of soft economic data from the US and upbeat inflation data from the Euro zone, we forecast the EURUSD to rally further.

The historic price chart below indicates firm support for the EURUSD pair at 1.0890. The pair has also closed above its 50-period (H4) moving average. The MACD indicator is on the verge of making a bullish crossover above the zero line. This indicates that the uptrend will continue in the short-term.

EURUSD - Technical Analysis - 15th May 2016

To benefit from the rally, a Forex trader can buy the Euro in exchange of the US dollar, near 1.0900. A stop loss order is advised below 1.0800. The trade can be closed near 1.1040.

By trading a call option, a binary trader can gain from the uptrend. It is advisable to invest when the currency pair trades near 1.0900. Furthermore, the trader can increase the odds of success by selecting May 23rd as the option expiration date.

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